China-Italy business trends

Analysis of commercial exchange trends and investment opportunities.

The data relating to trade between China and Italy show that, despite the impact of the pandemic, economic relations between the two countries have remained solid. According to ICE Agency and ISTAT, the total flow of trade between Rome and Beijing reached 45 billion euros in 2020. Of these, 32.1 billion euros represent the value of goods produced in China and imported in Italy, while the total exports of “Made in Italy” to China amounted to 12.9 billion euros. The aggregate trade flow (import + export) grew by approximately +0.9%, with an increase in Chinese exports to Italy (+1.5%) and a reduction in imports of products from China (-0.6% ).

In order to analyze these percentages, a broader context needs to be analyzed: Italian exports to the rest of the world (433 billion euros in 2020) contracted by about -9.7%, while imports (370 billion euros) recorded a decline of over -12.8%, following a very different trend compared to trade with China.

Beijing in 2020 saw a record trade flow of over 4,070 billion euros, with exports of 2,270 billion euros (+ 4%) and imports of 1,800 billion euros (-0.7%).

Italian exports to China mainly concerned machinery and equipment (3.8 billion euros, 29% of the total), chemical products (1.1 billion euros, 9% of the total) and pharmaceutical products (1 billion euros, 8% of the total). The greatest increase concerned metallurgical products (+253 million euros, + 106%), chemical products (+207 million euros, + 22%) and food products (+117 million, + 46%). The most impacted categories by the health emergency were textiles (-99 million euros, -23%), and means of transport other than cars (-88 million, -39%).

As regards imports towards Italy, the flows of goods from China are mainly attributable to the following categories: computers and electronic products (5.5 billion euros, equal to 17% of the total), textile products (4 billion euros, 13 % of the total), machinery and equipment (3.7 billion, equal to 12% of the total). The greatest increase concerned textile products (+2.3 billion, +128%) and means of transport other than motor vehicles (+157 million, +36%), while metallurgical products decreased (-494 million, -32%) and leather goods (-433 million, -25%).

On the investment side, according to data from UNCTAD (United Nations Conference on Trade and Development), global foreign direct investment (FDI) during the year of the pandemic fell to $ 860 billion, leading to a global decline of more than 40% which brought the value of FDI to that of 2005. Containment measures, quarantines and travel restrictions have also slowed or canceled most of the investment projects, showing a more or less severe impact depending on the single region and country. In contrast, China recorded an increase in both foreign investments (+3.3%, equal to 133 billion dollars), and inbound flows (+4% for a total of 163 billion dollars), becoming the leading economy for Foreign Direct Investments (FDI).

For what concerns capital flows between Italy and China, according to the most recent data from the Bank of Italy, updated to 2019, total Chinese investments in Italy have almost increased tenfold in 5 years, from 573 million euros in 2015 to 4.7 billion euros in 2019, while Italian investments in China amounted to around 10.3 billion euros in 2019, to which are added the 3.6 billion euros of investments in the Hong Kong special administration region.

These estimates are often considered incomplete, due to the common practice of many Chinese groups to make investments with sub-holding and vehicles in jurisdictions offering financial or tax advantages (Cayman Islands, British Virgin Islands, Luxembourg). Furthermore, to be considered are also the regulations of the Chinese government aimed at limiting high-risk foreign investments.

Analyzing the range of acquisitions in Italy, it is understood that Chinese investors, often controlled by the state, have a focus on technology, brands with a global presence, energy and other strategic sectors, with controlling interests or significant influence (Pirelli, CDP Reti, Ansaldo). Well known are also recent years Chinese investments in the world of football (Inter), fashion and luxury (Krizia, Ferretti, Moncler, Ferragamo), and manufacturing (Candy). Another important role is played by minority interests in main Italian listed groups, such as the investments of the People's Bank of China in ENI, TIM, Intesa San Paolo, Saipem and Prysmian, and of the Silk Road Fund in Autostrade), together with the most recent news of the investment of one billion euros planned by Faw in Emilia Romagna for the construction of a state-of-the-art center for the production of supercars.

A Copasir report highlighted that at the end of 2019 there were about 405 Chinese groups in Italy, with investments in approximately 760 Italian companies, a turnover of over 25 billion euros and 43,700 people employed. These investments’ trends show a preference towards the manufacturing sector, in particular, in the mechanical machinery and equipment, rubber and plastic products, and pharmaceutical products.

The data also show that Chinese investments in Italy are not limited to the acquisition of existing companies, but involves also greenfield projects, often in the commercial and service sectors.

Italian investments in China are made by large industrial groups, but also by small and medium-sized enterprises that comprise Italian economy. Started from a manufacturing hub with high production capacity and low labor costs, Beijing has converted its economy from a global producer to consumer; in this scenario, several Italian groups, especially in the high-end and food and beverage sectors, have entered China, to exploit the internal market potential. In fact, in China operate all major Italian industrial groups (Fiat, Fincantieri, Danieli, ENI, Iveco, Piaggio, Bonfiglioli), luxury operators (Armani, Prada, Moncler, Zegna, Golden Goose, Luxottica, Etro), but also banks and insurance companies (Unicredit, Intesa San Paolo, Generali), for a total of approximately 2,300 registered entities, which account for about 60,000 jobs and a turnover of over 5 billion euros.

Italy is the first G7 country as well as first founder of the European Union and the largest economy by GDP to have signed a memorandum with China to join the Belt and Road Initiative. The agreement, signed on 23 March 2019 on the occasion of President Xi's visit to Rome, is accompanied by other 29 treaties concerning the sectors of trade, energy, industry, infrastructure and finance, aimed at promoting and strengthen the economic and commercial relations between the two countries. Furthermore, again on the memorandum’s occasion, the new treaty against double taxation (DTA) was signed. It will help increase bilateral investments as soon as it is ratified by both countries. The main changes compared to the previous DTA of 1986 are in fact related to the reduction of withholding taxes on dividends from qualified shareholdings (from 10% to 5%), on interest paid to financial institutions (from 10% to 8%) and on royalties relating to the use of industrial, commercial and scientific equipment (from 7% to 5%).

China is the first country for trade and export volumes, the first country for GDP at purchasing power parity, the first destination for FDI and among the important global economies it has the largest number of tax and free trade agreements. In this respect, through the Regional Comprehensive Economic Partnership (RCEP) to which ASEAN, Japan, South Korea, Australia and New Zealand adhere, Beijing guarantees access to the wider Free Trade Zone ever.

Economic relations between Italy and China are expected to remain of strategic importance in the long term, regardless of political relations with Washington, Brussels or other regions of the world.